Currency Trader Magazine

Strategies, analysis, and news for FX traders
May 2010
Volume 7, No. 5
LATIN AMERICAN
CURRENCIES:
Still room to fly? p. 6
ADAPTIVE FX:
Adjusting strategies for
volatility pays dividends p. 14
UNDERSTANDING
the dollar index p. 10
CANADIAN DOLLAR
CROSS RATES:
Where the edge lies p. 18
TRADING THE AUSSIE

dollar short setup p. 32
CONTENTS
Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Currency Futures Snapshot . . . . . . . .23
Global Markets International Markets . . . . . . . . . . . . . .24

Latin economies hot, Numbers from the global forex, stock,
currencies mostly warm . . . . . . . . . . . . . . .6 and interest-rate markets.
Latin America weathered the global recession
better than most regions, but only some of its Global Economic Calendar . . . . . . . . . .28
currencies have enjoyed notable gains. Important dates for currency traders.
By Currency Trader Staff
Events . . . . . . . . . . . . . . . . . . . . . . . . . . .30
On the Money Conferences, seminars, and other events.
Can you use the dollar index? . . . . . . . . .10
A surprising look at what the dollar index New products & services . . . . . . . . . . . .30
actually represents.
By Barbara Rockefeller Key Concepts . . . . . . . . . . . . . . . . . . . . .31
Trading Strategies Forex Journal . . . . . . . . . . . . . . . . . . . . .32

Using dynamic look-back periods Weekly Aussie dollar short pattern signals near
in FX systems . . . . . . . . . . . . . . . . . . . . . .14 resistance.
Adapting indicator periods to volatility can make
a mechanical trading system more resilient to
changing market conditions.
Looking for an advertiser?
By Daniel Fernandez
Click on the company name for a direct link
to the ad in this month’s issue.

Advanced Strategies
Canada on the cross rates . . . . . . . . . . . .18 dbFX
The (cross) road less traveled sometimes eSignal

offers better trading opportunities.
FXCM
By Howard L. Simons
Traders Expo
Your FX Trading Room
Questions or comments?
Submit editorial queries or comments to
webmaster@currencytradermag.com.
2 May 2010 • CURRENCY TRADER

CONTRIBUTORS
Howard Simons is president of

Rosewood Trading Inc. and a strategist for
Bianco Research. He writes and speaks fre-
A publication of Active Trader ®
quently on a wide range of economic and
For all subscriber services:
www.currencytradermag.com
financial market issues.
Barbara Rockefeller (www.rts-forex.com) is an

Editor-in-chief: Mark Etzkorn
metzkorn@currencytradermag.com
international economist with a focus on foreign exchange.
She has worked as a forecaster, trader, and consultant at
Managing editor: Molly Goad
Citibank and other financial institutions, and currently
mgoad@currencytradermag.com
publishes two daily reports on foreign exchange.
Contributing editor: Rockefeller is the author of Technical Analysis for Dummies
Howard Simons
(For Dummies, 2004), 24/7 Trading Around the Clock,
Contributing writers: Around the World (John Wiley & Sons, 2000), The Global
Barbara Rockefeller, Marc Chandler,
Chris Peters
Trader (John Wiley & Sons, 2001), and How to Invest
cpeters@currencytradermag.com Internationally, published in Japan in 1999. A book tenta-
tively titled How to Trade FX is in the works. Rockefeller is
Editorial assistant and
webmaster: Kesha Green on the board of directors of a large European hedge fund.
kgreen@currencytradermag.com
Art director: Laura Coyle Daniel Fernandez is an active trader

lcoyle@currencytradermag.com with a strong interest in calculus, statistics,
President: Phil Dorman and economics who has been focusing on

pdorman@currencytradermag.com the analysis of forex trading strategies, par-
ticularly algorithmic trading and the mathe-
Publisher, Ad sales:
Bob Dorman matical evaluation of long-term system profitability. For
bdorman@currencytradermag.com
the past two years he has published his research and
Classified ad sales: Mark Seger opinions on his blog “Reviewing Everything Forex,”
seger@currencytradermag.com which also includes reviews of commercial and free trad-
ing systems and general interest articles on forex trading
(http://fxreviews.blogspot.com). Fernandez is a graduate
of the National University of Colombia, where he
Volume 7, Issue 5. Currency Trader is published monthly by TechInfo, Inc., majored in chemistry, concentrating in computational
161 N. Clark St., Suite 4915, Chicago, IL 60601. Copyright © 2010 TechInfo,
Inc. All rights reserved. Information in this publication may not be stored or
reproduced in any form without written permission from the publisher.
chemistry. He can be reached at
The information in Currency Trader magazine is intended for educational pur- dfernandezp@unal.edu.co.
poses only. It is not meant to recommend, promote or in any way imply the
effectiveness of any trading system, strategy or approach. Traders are advised
to do their own research and testing to determine the validity of a trading idea.
Trading and investing carry a high level of risk. Past performance does not
guarantee future results.

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GLOBAL MARKETS
Latin economies hot,

currencies mostly warm
Brazil remains the region’s lion, but lately its currency
hasn’t been roaring the way it used to.
BY CURRENCY TRADER STAFF
A s the global recovery pushes into mid-2010,

Latin America has been outperforming most
developed nations, and second only to the Asia
in terms of economic growth prospects this year.
That strength has translated into moderate gains this
declined 0.58 percent during this period as it continued to
consolidate relatively close to its 2009 high (Figure 1).
The Latin region as whole managed to sidestep large
parts of the 2008-2009 economic meltdown, and as the
global economy has stabilized over the past year, Latin
year in some, but not all, Latin currencies vs. the dollar, America has rebounded more forcefully than most other
including a 6.95-percent gain in the Mexican peso from areas. Credit Suisse forecasts a 4.7-percent GDP growth
December 31, 2009 through April 19, 2010 and a 4.72-per- rate for the area in 2010 vs. a 1.5-percent pace for the
cent gain by the Colombian peso. However, the region’s Eurozone, 1.5-percent for the UK, and 3.5 percent for the
long-time currency star, the Brazilian real, actually U.S.
Many Latin countries were not
exposed to the toxic mortgage debt
FIGURE 1: DOLLAR/REAL that brought down the U.S. and other
In 2009 the USD/BRL pair fell back toward its 2008 low as the real regained its developed nations; the region did,
strength vs. the U.S. dollar. It has moved mostly sideways since last August. however, experience a slowdown
during the global recession as export
from its commodity rich nations
dropped sharply. However, some
governments, notably Brazil, are
attempting to stimulate domestic
demand to decrease overall depend-
ence on exports.
Growth prospects for the region’s
top economies remain quite positive.
Credit Suisse expects Brazil’s GDP to
expand at a 6.5-percent rate in 2010,
with Chile posting a 5-percent pace,
Mexico and Argentina 4 percent, and
Columbia 2 percent.
Brazil: Strong growth,

favorable interest rates, but…
Brazil remains the leading economy
in the Latin region and was named
Source: ADVFN
by several economists as the top pick

of the region in terms of future growth.
“Brazil is the front runner and is in a leadership
[position] on an economic growth basis,” says Enrique
Alvarez, head of Latin American research at Ideaglobal.
“It is a consequence of government stimulus and
reform.”
Eugenio Aleman, senior economist at Wells Fargo
adds that Brazil “created domestic demand programs,
very similar to the U.S. ‘cash for clunkers’” that have
helped stimulate domestic demand.
In fact, domestic consumption has been the main
driver of growth in Brazil, according to Marcelo
Salomon, Brazil chief economist at Barclays Capital.
“While the industrial sector tracked the global eco-
nomic slump tick-by-tick, the service sector remained
resilient,” he says. “With potential growth accelerating
to the 4- to 4.5-percent range the past couple of years
and the government’s transfer programs lifting real
income in the poorer regions of Brazil, the middle class
expanded and consumption also shifted to a higher
level.”
Barclays’ growth outlook is more modest than Credit
Suisse’s, but it’s still strong, and likely to be revised
higher than lower.
“We are forecasting real GDP to grow at 5.7 percent
in 2010, but should be revising this number up,”
Salomon says. “Recent activity indicators have sur-
prised us on the upside, signaling that real GDP should
close the year slightly above the 6-percent level.”
Also, two international events bode well for Brazil’s
sustained economic strength over the next several years:
the World Cup in 2014 and the Olympics in 2016. These
events “will attract a lot of investment,” notes Wells
Fargo’s Aleman.
Of course, bullish interest-rate differentials remain a
positive factor for the Brazilian currency, the real.
“Brazil remains a favorable destination because of its
high interest rate,” says Michael Woolfolk, managing
director at BNY Mellon.
Brazil’s central bank lending rate (the selic rate) was
hiked to 9.5 percent on April 28, compared to a U.S. fed
funds rate of zero to 0.25 percent. The selic rate had
been at 8.75 percent since last July when the central
bank cut rates by .50 percent. Economists are looking
for more increases this year. Barclays Capital’s Salomon
believes Brazil will halt its rate-hike cycle fairly quickly,
but not before the selic rate is in double digits.
“The risk is that the cycle is more frontloaded,” he
says. “The cycle should be ending by August or
October, with the Selic rate rising to 11.5-percent.”
However, the real’s prospects vs. the dollar for the
remainder of 2010 might be relatively muted. “We see
only marginal upside because of [our forecasts] for
broad-based [U.S.] dollar strength this year,” Woolfolk
says.
The Brazilian real has already chalked up big gains
over the past year. In January 2009, the U.S.
dollar/Brazilian real (USD/BRL) pair stood at 2.3400
but weakened steadily (reflecting real strength vs. the
dollar) throughout the year to the end 2009 around
1.7500.
CURRENCY TRADER • May 2010 7

GLOBAL MARKETS
FIGURE 2: DOLLAR/MEXICAN PESO future.

After consolidating for much of 2009, the USD/MXN rate pushed lower in “The recovery will advance this
January 2010, and by April the peso was stronger vs. the dollar than at any time year, although it will be moderate,
since October 2008. since it will depend on U.S. perform-
ance and the gradual advance of
domestic market, particularly con-
sumption and investment,” says
Alfredo Coutino, director of Latin
America research, at Moody’s
Economy.com’s. “The economy will
report a growth rate between 3.5 and
4 percent, consistent with potential
capacity.”
Wells Fargo’s Aleman pegs 2010
Mexican GDP growth at 3.4 percent,
highlighting several nagging prob-
lems the country faces: “The drug
war and the effects of migrants
going back to Mexico, which is put-
ting pressure at the social level,” he
notes. “And tourism is suffering,
which is a very large industry in
Source: ADVFN
Mexico.”
The Mexican central bank lending
rate stands at 4.5 percent and has
One development — Brazil’s October presidential elec- been unchanged for nine months. The bank is scheduled
tion — could create some volatility for the real. to meet on May 21, but analysts expect rates to hold
“Elections over the past two decades have seen some steady.
political uncertainty,” Woolfolk notes. “We could see a The Mexican peso (MXN) has been the winner among
brief bout of weakness in the third quarter.” However, Latin currencies in recent months, but some analysts say
Woolfolk thinks any pullback in the real would be minimal its nearly 7-percent gain vs. the dollar in the first four
(perhaps 5 percent or so), and any retreat could be seen as months of the year was something of a “catch-up” after a
a buying opportunity. 2009, during which the peso chopped up and down, with
BNY Mellon targets the USD/BRL pair around 1.7000 a slightly bullish bias (Figure 2).
by year-end. With the U.S. dollar/Mexican peso pair (USD/MXN)
“Political jitters from Brazil’s presidential Elections in trading around 12.2000 in late April, analysts were upbeat
October should lift the USD/BRL toward the 2.0 level about the peso’s prospects, especially different peso cross-
sometime in the third quarter 2010,” Barclay’s Salomon rates.
says. “But we believe candidates are not willing to risk the “We believe the MXN will appreciate to 11.80 in three
significant advances observed in the recent years, and months, but will adjust to 12.00 later in the year as
more market-friendly signals around the election should Mexico’s growth outperformance capacity moderates,”
help bring the BRL back to the 1.8500 range.” wrote Barclay’s analysts in the April 16 Barclays Capital
Weekly Brief.
Mexico rebounds Noting the currency’s favorable interest-rate differen-
Although technically not part of Latin America, Mexico is tials, BNP Latin American economist Italo Lombardi
typically grouped among those nations, and has long had believes there is still room for peso appreciation, especially
one of the larger “Latin” economies. Currently, the coun- against the Euro (Figure 3).
try is starting to show signs of recovery after a severe “In late 2009, we put on a long MXN trade against the
downtown in 2009. “Mexico saw its worst recession since Chilean peso,” he says. “That did very well until the end
the 1930s last year,” Woolfolk notes. The country posted a of March and we closed it out with about a 10-percent
6.9-percent GDP decline last year. gain. Now we are reopening a long MXN against the
Mexico’s close trading ties with the U.S. hurt exports Euro. That pair is trading around 16.45 [in late April]. We
sharply, as many of Mexico’s manufactured goods are des- got in at 16.51, with a target at 15.75 and a stop-loss at
tined for their neighbor to the north. 16.85.”
“The basic issue is their biggest market is the U.S., and Alvarez offered another cross-rate perspective. He saw
U.S. consumers are not consuming very strongly,” Wells potential in a short Japanese yen, long Mexican peso or
Fargo’s Aleman says. long Brazilian real trade. “Essentially, it is a carry trade
Modest growth because of its close relationship the U.S. with opposing fundamentals,” he says.
seems to be the dominant theme for Mexico in the near

FIGURE 3: EURO/MEXICAN PESO
Despite the already strong move since last fall, some analysts see more room
Argentina: for the peso to strengthen vs. the Euro, suggesting the pair could push below
Inflation still an issue 16.000.
Credit Suisse forecasts a 4-percent
GDP growth rate for Argentina in
2010, following an estimated 0.5-per-
cent rate in 2009. The country is a
major commodity exporter and is
expected to post a current account
surplus in 2010, but fiscal issues still
weigh on the country and its finan-
cial markets.
In late April, Argentina received
U.S. regulatory approval for its plan
to restructure billions of dollars of
bonds from its historic 2001 default.
The country hopes to regain access
to international financial markets
through its offer to the holders of
roughly $20 billion in bonds who
chose not to accept an earlier restruc-
turing package. Source: ADVFN
“It’s been like a soap opera,”
Lombardi says. “We estimate accept- FIGURE 4: DOLLAR/ARGENTINE
ance of 75 to 80 percent [of the bond
offer]. It is going to be a positive for The big 2008-2009 uptrend reflects a weakening of the Argentine peso vs. the
the government in the sense that dollar. Since, last fall, however, the pair has gone almost nowhere.
they will be able to access the capital
markets again.”
But traders must take the govern-
ment data with a grain of salt. “They
fail to report reality in terms of eco-
nomic data and inflation,” Lombardi
says. “Official inflation is running at
9 to 10 percent per year, while in
reality it is much closer to 22 to 25
percent. They don’t have good man-
agement of inflation.”
The Argentine peso (ARS) fell 1.66
percent from Dec. 31, 2009 through
April 19, 2010 vs. the dollar. After a
big rally from July 2008 to August
2009, the USD/ARS pair has been
moving sideways (Figure 4). “There
is not much on the currency side in
Argentina,” notes Ideaglobal’s
Alvarez. Source: ADVFN
Chile quake,” Alvarez says. “The numbers will reflect slowdown

Previously aggressive economic growth forecasts for Chile in the second quarter [that will be] sustained in the third
have been downgraded for 2010 in the wake of the coun- quarter. Beyond that we see [results] from large govern-
try’s devastating February earthquake. Nonetheless, posi- ment injections.”
tive growth is still widely expected, following 2009’s 1.4- On a more bullish note, Chile is the world’s largest cop-
percent GDP contraction. per exporter, and copper contributes roughly one third of
“We expect the Chilean economy to grow by 2.7 percent all government revenue. “Copper has performed very
during 2010, down from our previous forecast of 4.4 per- favorably for Chile,” Alvarez notes.
cent before the earthquake,” wrote Wells Fargo Copper is widely used in construction and manufactur-
Economists in their March Global Chartbook. ing, and as the global economy began to emerge from
“We had very large growth expectations of about 5.5 to recession, copper prices have begun to appreciate, which
6 percent and have pared those back to 4.75 percent, off in turn is bullish for the Chilean economy. From October
the overflow coming from the consequences of the earth- continued on p. 31

ON THE MONEY
Can you use

the dollar index?
The dollar index hasn’t kept up with the times, but that hasn’t prevented it from
embedding itself in the forex culture.
BY BARBARA ROCKEFELLER
W hat good is the dollar

index? If you are an
economist, no good
at all. Aside from
replacing 12 European currencies with
the Euro in 1999, the dollar index
(USDX) hasn’t been changed since its
It’s debatable whether the dollar
benchmark for overall market direc-

tion. The conventional wisdom is that
includes Canada but not Mexico,
index can be used the same way stock Japan but not China or any of the
investors use equity indices — as a Asian Tiger economies that today rep-
resent a third of U.S. trade, as shown
in Table 2. According to the U.S.
the best equity investment model is to Census Bureau, as of February 2010,
find the direction of the market in the the top three European countries
inception in 1973 — it is deeply, wild- form of an index, say the Dow or the accounted for 13 percent of trade
ly unrepresentative of the trade rela- broader S&P 500, then find the while Asia accounted for 39 percent
tionships it purports to represent. strongest sector and, finally, winnow (29 percent, ex-Japan). These trade
And yet many people must like it. down to the strongest single stock in numbers comprise a little less than 70
The USDX is commonly cited in press the sector. Probability is on your side percent of total U.S. trade (and they
articles about “the dollar,” and the with this process. A rising tide doesn’t reflect only the first two months of
dollar index futures contract on the raise all boats, but it might help and it the year), but never mind — they
IntercontinentalExchange (ICE) was can’t hurt. illustrate the weights in the dollar
averaging a respectable 20,000 or so Conversely, a bottom-up process index are far off the mark. Sweden
contracts per day, or $1.623 billion in can hurt. If you start from the
notional value, near the end of April bottom up, with an individual
2010. This is small compared to the TABLE 2: TOP U.S. TRADING PARTNERS
stock, you are be sailing against
Euro futures, but it’s not peanuts. So Mexico accounts for 20 percent of trade
the wind if the sector or overall with the U.S. but is absent from the dollar
can we find a reasonable use for the market are falling. To expect
index? index. And aside from Japan, Asia has no
your individual stock to prevail representation in the index.
when its sector and index are
falling is unrealistic, or at least Exports + Imports
TABLE 1: COMPOSITION OF
unnecessarily risky. A falling Country $ (billions) Percentage
THE DOLLAR INDEX
tide doesn’t necessarily lower all Canada 78.12 28%
The U.S. dollar index is biased boats, but starting with top-
toward European currencies, Mexico 55.64 20%
down approach removes the risk
including two — the Swedish North America 48%
of contamination from the sector
krona and Swiss franc — with
negligible economic ties to the
or broad market. Japan 26.56 10%
U.S. in terms of trade. The dollar index, however, is China 62.29 22%
a much different animal.
S. Korea 11.89 4%
Euro 57.6%
Dissecting the Taiwan 8.59 3%
UK pound 11.9%
dollar index Asia 39%
Swedish krona 4.2%
Because the dollar index is com- Germany 18.1 7%
Swiss franc 3.6% prised mostly — 77.3 percent, in
France 9.44 3%
Europe total: 77.3% fact — of European currencies,
its usefulness as a benchmark Netherlands 7.83 3%
Canadian dollar 9.1%
may be limited (Table 1). Europe 13%
Japanese yen 13.6%
As currency baskets go, this is
about as bad as it gets. It

FIGURE 1: DOLLAR INDEX VS. EURO
and Switzerland don’t even make the
list of the top 10 U.S. trading part- The Euro makes up 57.6 percent of the dollar index, and the two price series
ners, but together they account for track each other fairly closely.
7.8 percent of the dollar index.
If the dollar index isn’t true to its
goal of representing the currencies of
the top U.S. trading partners, why
would anyone use it? Why is it not
revised regularly, like the Dow, the
S&P, and other stock indices? The
Intercontinental Exchange (ICE) says
the dollar index’s variance from the
more comprehensive and often-
updated Federal Reverse dollar index
is very low. In fact, ICE claims the
index’s stability is a virtue, not a
drawback: The six components of the
dollar index have a low correlation
with one another, making the index
useful as a broad hedge — better
than the Euro or yen alone (see
https://www.theice.com/public-
docs/ICE_USDX_Brochure.pdf). Source: Chart — Metastock; data — Reuters and eSignal
We wouldn’t expect the dollar
FIGURE 2: DOLLAR INDEX VS. YEN
index to vary much from the Euro,
since the Euro makes up 57.6 percent In contrast to Figure 1, there is much more divergence between the dollar/yen
of the index (Figure 1). The index vs. rate and the dollar index.
dollar/yen in Figure 2 shows more
divergence, which is not surprising
since dollar/yen pair has a life of its
own.
Another yen cross-rate with a life
of its own is the Euro/yen pair. It has
a distinct class of traders and
hedgers, including carry-traders. In
Figure 3 it looks as if the Euro/yen
leads the dollar index, at least at the
two highlighted extremes, and it may
have a stabilizing effect at other times
(triangle).
Why would the Euro/yen lead the
dollar index? In recent years the
dominant factor in the yen vs. all
other currencies has been the effect of
the carry-trade. The yen moves
strongly on waves of risk aversion
and risk appetite, more or less Source: Chart — Metastock; data — Reuters and eSignal
regardless of fundamentals. Along
with the yen, the USD tends to be a USD was the preferred target of the carry trade. But in
beneficiary of risk aversion. 2008 this apparent relationship falls apart — the AUD/JPY
But if we test this idea by looking at the king of risk crashes while the dollar index rises. Then in 2009-2010, the
appetite trades, the AUD/JPY pair, we see a mess (Figure AUD/JPY seems to be leading the dollar index, implying
4). When AUD/JPY was rising from 2000 to 2007, the dol- the two dollars are both the recipient of carry-trade buy-
lar index was falling, implying the AUD rather than the ing.

ON THE MONEY
FIGURE 3: DOLLAR INDEX VS. EURO/YEN We deduce from this that press
reports attributing a rise in the dollar
Euro/yen appears to lead the dollar index at the two circled extremes, while
seeming to have a stabilizing effect at other times (triangle). index to rising risk aversion are just
wrong. Of course, in forex single-fac-
tor explanations are never sufficient,
anyway.
Who’s using it?

If the dollar index has uncertain value
to traders in the single-pair outrights,
who uses the dollar index, and why?
The ICE brochure says equity fund
managers are a large percentage of
the participants. The dollar index is
demonstrated to be a useful hedge
against broad equity indices such as
the Morgan Stanley Capital World Ex-
U.S. Index. This is not something the
average Joe consults or trades, but it
is a benchmark for fund managers.
Others point to the dollar index as
the vehicle of choice for hedging in
commodity markets, especially oil
Source: Chart — Metastock; data — Reuters and eSignal
and gold. These markets, too, are
mostly traded as futures contracts
FIGURE 4: DOLLAR INDEX VS. AUSSIE/YEN and most active in the U.S. morning
hours. As we know (ruefully), when
The implications of Figure 3 fall apart here, suggesting reports attributing a rise
oil traders lack a solid supply or
in the dollar index to increased risk aversion are incorrect.
demand story, they say oil rose
because the dollar fell, and vice-versa.
Meanwhile, FX traders say the dollar
fell because oil rose — a circular argu-
ment that makes you want to tear
your hair out. (By the way, this
inverse correlation is not written in
stone. In decades past, oil and the
dollar moved in lockstep.)
The same is true of gold. Until
recently, gold was considered inverse-
ly correlated to the dollar. As confi-
dence in U.S. fiscal management
waxes and wanes and inflation fear
gets a grip on the public imagination
or loses it, gold responds. Only the
biggest supply and demand factors
get enough notice to override the
now-established correlation. From the
start of 2010, however, gold has had a
stronger correlation to the Euro than

the dollar, with the Euro being the FIGURE 5: DOLLAR INDEX VS. COMMODITIES
most prominent symbol of sovereign
Figure 5 there are two noticeable divergences of the dollar index from the CRB
risk because of the Greek debt situa- index (brown) and crude oil (blue).
tion. In other words, the currency
changed but the principle of gold
correlating to sovereign risk did not.
Figure 5 shows the dollar index
vs. oil and the more comprehensive
CRB commodity index. Clearly there
are two very noticeable divergences
of the dollar index from the two
commodity measures. A test of the
correlation-causation thesis comes
when the dollar is moving sideways.
In that case, oil and gold “should”
be flat, too. Figure 6 shows as close
to a sideways period as we are likely
to find. Do they both go sideways at
the same time? Well, maybe, but the
hypothesis can hardly be said to be
proved.
A market on its own Source: Chart — Metastock; data — Reuters and eSignal
So, you can’t use the dollar index
when trading outright currency
pairs. You might want to give it a FIGURE 6: DOLLAR INDEX VS.OIL
whirl when commodity prices are According to prevailing wisdom, when the dollar moves sideways, oil should,
very active and moving hard, but too. The evidence is inconclusive.
otherwise the correlation is more
apparent than real. If professional
equity managers want to use it to
hedge some giant global index, more
power to them, but this is not really
something the average FX trader
wants to do.
Having said that, there’s nothing
wrong with trading the dollar index
alone as a speculative asset in its
own right. Getting a grip on price-
determining factors is about the
same as for the Euro/dollar — the
usual bond spread changes, relative
economic growth, institutional
events. To that list we can add oil — Dollar index
and gold, since the dollar index mar- — Oil
ket has set it up to be a self-fulfilling
relationship.
Click here for information on the author.

TRADING STRATEGIES
Using dynamic look-back

periods in FX systems
A robust approach to making a trading system dynamic improves
profitability and shrinks drawdowns.
BY DANIEL FERNANDEZ
O ne of the biggest challenges of mechanical

trading system development is creating
strategies that are able to withstand
changes in market conditions without sacri-
ficing profitability.
“Adaptive FX money management” (Currency Trader,
Nov. 2009) showed how an adaptive money management
for two trading systems — further increases profitability.
This experiment will be conducted on two trading strate-
gies, one based on simple moving averages and the other
on the moving average convergence-divergence (MACD)
indicator.
The first strategy enters trades on crossovers of a 15-
period moving average and a longer-term n-period vari-
approach significantly improved the results of a trading able moving average, as shown in Figure 1. Buys occur
system. Here we’ll see if adjusting other variables to when the 15-period average crosses above the n-period
volatility — specifically, the indicator look-back periods average; shorts occur when the 15-period average crosses
below it. Positions are exited on
crossovers (in the opposite
FIGURE 1: MOVING AVERAGE SYSTEM SIGNALS
direction) of 15- and 21-period
The first strategy enters trades on crossovers of a 15-period moving average and a moving averages.
longer-term n-period variable moving average, and exits positions when 15- and 21-
The second strategy is similar
period moving averages cross in the opposite direction.
in that it adjusts the longer-
term exponential moving aver-
age (10, n, 9) in the MACD for
volatility. The system goes long
when the MACD histogram
forms the three-bar bottom pat-
tern (a low surrounded by two
higher lows) shown in Figure 2;
it goes short when the his-
togram forms the three-bar top
pattern. These patterns can sig-
nal the end of retracements and
are likely to be followed by con-
tinuations of the previously
established trend. Also, short
trades are entered only when
the MACD histogram is below
the zero line (indicating a
downtrend), while long trades
are entered only when the his-
togram is above zero (indicat-
ing an uptrend).

FIGURE 2: MACD SYSTEM SIGNALS
The second strategy adjusts the longer-term exponential moving average (10, n, 9)
in the MACD and goes long or short when the MACD histogram forms the three-bar
bottom and top patterns highlighted in the boxes.
The moving average strategy

uses a profit target and stop-
loss value of half (.50) of the 14-
period daily average true range
(ATR), while the MACD-based
strategy uses a 1.00-ATR move
for both the profit target and
stop-loss. For example, for the
moving average system, if a
short trade was entered at
1.3432 and the 14-period ATR
was 150 pips, the stop-loss
would be:
1.3432 + (0.5*0.0150) =
1.3507
The profit target would be:

1.3357 (1.3432-0.5*0.0150)
For the MACD strategy the

stop-loss and profit-target val-
ues would be 1.3582
(1.3432+1.00*150) and 1.3282 (1.3432–1*150), respectively. moving average look-back periods will be lengthened pro-
Both strategies use the following formula to calculate portionally as volatility increases. The following tests use
trade size, which increases the position size when volatili- the British pound/U.S. dollar pair (GBP/USD) for the
ty is lower and decreases it when volatility is higher: moving average system and the Euro/U.S. dollar pair
(EUR/USD) for the MACD system.
Trade size = 0.01*AccountBalance/(ContractSize*14- First, a range for the variable moving averages must be
period ATR) defined — minimum and maximum lengths that will pre-
vent the systems from using averages that are too long or
For example, if a trade is triggered the account balance short for practical trading. To do this, the GBP/USD and
is $100,000 account and the 14-period ATR is 150 pips, the the EUR/USD pairs were analyzed over the past 10 years
trade size would be: and minimum-maximum moving average lengths were
0.01*100,000/(100,000*0.0150) = 0.67, or $67,000 established of 180-250 for the moving average strategy
(GBP/USD pair) and 310-540 for the MACD strategy
If the 14-period ATR increased to 300 pips, the trade size (EUR/USD pair). These ranges were simply based on visu-
would be: al analysis of high- and low-volatility conditions, without
0.01*100,000/(100,000*0.0300) = 0.33, or $33,000 conducting any optimization.
The two linear equations in Figure 3 represent the
Next we’ll look at how to make the systems’ moving change of the slow moving average lengths vs. the daily
average adjust to volatility. ATR. The equations are essentially functions that allow the
indicator periods to be calculated continuously, from the
Making the indicators dynamic minimum to maximum moving average lengths referenced
The two systems’ slower moving averages will be adapted in the preceding paragraph. For example, for the MACD
to changes in volatility as represented by the 14-day ATR. strategy the ATR high of the GBP/USD should result in a
Because higher market volatility increases the odds of moving average length of 540, while the ATR low should
whipsaw signals in moving average-based strategies, the result in a moving average length of 310.

ON THE MONEY
TRADING STRATEGIES
FIGURE 3: ADAPTIVE EQUATIONS

The functions are:
The two equations show how the moving average lengths are adjusted to
volatility, between the predefined minimum and maximum lengths for each sys-
tem/currency pair. 1. Slow MA length = 6000*ATR + 210
2. Slow MACD EMA length =
4250*ATR + 150
For example, if the 14-day ATR for

the MACD strategy is 150 pips, the
length for the indicator’s longer-term
EMA for that trading day is:
4250*0.0150 + 150 = 214
If the ATR increases to 200 pips, the

length would become:
4250*0.0200 + 150 = 235
FIGURE 4: MOVING AVERAGE SYSTEM (GBP/USD) Next, we will test the static and
Making the system adaptive reduced the drawdown between trades 100-175. adaptive versions of these systems
and compare the results.
Test results
The two systems were tested on
hourly data from Jan. 1, 2000 to Jan.
1, 2010. Note that although the daily
ATR is used the strategy is executed
on the one hour charts. The daily
ATR is used because using a volatili-
ty adaptation based on the same time
frame could lead to significant curve
fitting. Again, the moving average
system was tested on the GBP/USD
FIGURE 5: MACD SYSTEM (EUR/USD) pair and the MACD system was test-
ed on the EUR/USD pair.
The adaptive equity curve is smoother— profits are increased drawdowns are
reduced. Figures 4 and 5 compare the equity
curves of non-adaptive and adaptive
versions of these systems; both were
net profitable at the end of the 10-
year test period. The non-adaptive
versions used long-term moving
average lengths of 300 (for system 1)
and 250 (for system 2), which repre-
sent the average values of each sys-
tem’s adaptive moving average
lengths over the test period.
Both adaptive versions of the sys-
tems show improved performance
over their static counterparts. In both

TABLE 1: STATIC VS. DYNAMIC
The adaptive systems’ improvements were modest but consistent. Also they were not the result of optimization,
which makes them more worthy of consideration.
Avg. yearly Max. Winning No. of Profit Max. consec.

profit drawdown trades trades factor winners/losers
MACD strategy 5.3% 19.2% 52.9% 874 1.8 8/8

MACD strategy 5.5% 18.8% 53.0% 874 1.10 9/8
MA strategy 2.3% 6.3% 49.2% 455 1.26 5/7
MA strategy 2.4% 4.0% 50.6% 470 1.30 6/7
Adaptive technique results are shown in green.
cases the differences are not dramatic, you must always do a preliminary vide a system that is better able to
but they are consistent. The adaptive evaluation of the system across differ- adapt to changing market conditions,
equity curves are smoother — profits ent volatility levels to determine the which is the biggest challenge facing
are increased and drawdowns are range and way in which the indica- any system trader.
reduced. (Note, for example, how tor’s period should vary against mar-
much smaller the adaptive system ket volatility. The end result can pro- Click here for information on the author.
drawdown is in Figure 4
between trades approxi-
mately 100-175.) Table 1
compares the systems’ aver-
age yearly profit, maximum
drawdown, and winning
percentage.
Another positive aspect of
these tests is that none of
the parameters were opti-
mized, which means the
outcome is not the result of
curve fitting and we can
have more confidence this
approach has the potential
to enhance a system’s
longer-term survival prof-
itability. So, although the
performance improvements
were modest, the robust
nature of this generic
method of adding adaptabil-
ity makes the results more
significant than dramatically
improved numbers that are
the result of optimization.
This concept can be used
to make other indicator-
based trading systems
responsive to changing mar-
ket conditions. However,

TRADING STRATEGIES
ADVANCED STRATEGIES
Canada
on the cross rates
Not all CAD crosses are created equal.
The JPY offers some benefits not present in the Euro.
BY HOWARD L. SIMONS
T
rading cross rates is the currency market’s to facilitation desks in the cash market and are essentially
equivalent of eating spinach: Everyone says it unsuitable for active currency traders? Let’s run down a
is a great idea for someone else but they never list of favorite tools and indicators for currencies and see
seem to find time to do it themselves. On one whether any of them can be used for trading purposes for
level this is quite understandable, as traders naturally those who wish to trade in a thinner market with poten-
gravitate toward deep, liquid markets, especially as trad- tially greater inefficiency and wider margins.
ing becomes increasingly algorithmic. However, the cen-
tripetal pull of activity into a small handful of very large Expected interest-rate differentials
markets leads to ever-smaller per-trade margins. The road As always, a good place to start the analysis is with the
less traveled often provides the greatest opportunities. expected interest-rate differentials between two currencies.
Let’s take a look at two cross rates between three differ- This we can do by taking the difference between the for-
ent major currencies, all of which are highly liquid vs. the ward-rate ratios (FRR6,9) between six and nine months for
U.S. dollar: the cross rate
between the Canadian dollar and
the Japanese yen, expressed here FIGURE 1: CAD/JPY CROSS AND EXPECTED INTEREST RATE DIFFERENTIALS
as CAD per JPY, and the cross The positive CAD/JPY interest-rate differential from mid-2002 to early 2009
rate between the Euro and the stemmed mostly from the incorrect assumption that short-term Japanese interest
Canadian dollar, expressed here rates eventually had to rise. When Japan resumed quantitative easing in December
as EUR per CAD. (As an aside, 2008, the differential turned negative.
the Chicago Mercantile Exchange
has futures on both of these cross
rate pairs expressed in the exact
opposite manner, JPY per CAD
and CAD per EUR. At the early
March 2010 time of this writing,
the CAD/EUR cross rate had an
open interest of 16 contracts and
the JPY/CAD cross rate future
had an open interest of 4 con-
tracts. The
IntercontinentalExchange has a
little more success with their con-
tracts, with open interest figures
were 1,056 and 379, respectively.)
Are these low open interest fig-
ures in the futures markets trying
to tell us something—that these
two CAD cross rates are best left

FIGURE 2: EUR/CAD AND EXPECTED INTEREST-RATE DIFFERENTIALS
each currency. This is the rate at
In the CAD/EUR pair, the interest-rate differential does not lead the cross rate, but
which we can lock in borrowing
rather is led by it.
for three months starting six
months from now divided by the
nine-month rate itself.
The more this ratio exceeds
1.00, the steeper the yield curve
along this segment, and the
greater the expectations are for
interest rates to increase along
that segment of the yield curve.
Our expectation should be for the
currency with the higher FRR6,9
to be stronger on the cross rate,
subject to all manner of special
considerations such as relative
prospective asset returns, current
account imbalances, and political
risks.
What do we see when we map
the FRR6,9 differentials against
the two cross rates against the
CAD? In the case of the JPY, the FIGURE 3: JAPANESE EQUITIES NEVER FOLLOWED CROSS RATE IN CRISIS
differential had been positive
from mid-2002 into early 2009 The relative performance of Japanese stocks to Canadian stocks broadly tracked
(Figure 1). More than anything the CAD/JPY cross rate from 1999 through the late-2007 bull market peak (Figure
else, this was an artifact of the 3). The relationship resumed in 2009, but only after a huge divergence during the
2008 financial crisis.
near-constant and incorrect
assumption short-term interest
rates in Japan simply had to rise
at some point. Once that assump-
tion was abandoned with the re-
adoption of quantitative easing in
Japan in December 2008, the dif-
ferential turned negative as the
market expected Canadian rates
to begin rising faster.
The long-term trend of 2000-
2007 was for the CAD to gain on
the JPY on this cross rate; after
2007, no real trend existed at all in
the cross rate. The FRR6,9 differen-
tial leads the CAD per JPY cross
rate by six months on average;
this long lead time may reflect
Japan’s role as both a large portfo-
lio investor in Canada and

ON THE MONEY
ADVANCED STRATEGIES
FIGURE 4: EUROZONE RELATIVE PERFORMANCE SELDOM LINKED TO CROSS

Canada’s role as a large supplier
The relative performance of Eurozone stocks to Canadian stocks as a function of of raw materials, lumber in par-
the EUR/CAD cross rate is virtually non-existent, with the exception of portions of ticular, to Japan. A more com-
the 2005-2008 period. mon three-month lead time for
expected interest-rate differen-
tials is three months.
Once we shift to the CAD per
EUR cross rate, an anomaly aris-
es immediately. Here the FRR6,9
differential between the EUR
and CAD has oscillated about
from positive to negative, with
the largest negative differential
occurring in the August-
September 2009 period when
U.S. short-term interest rates
went under Japanese short-term
interest rates and prompted the
unwinding of various dollar
carry trades (Figure 2).
However, the differential does
not lead the cross rate but rather
is led thereby, a phenomenon
not observed by this author in
FIGURE 5: JAPANESE RELATIVE PERFORMANCE LINKED TO CARRY RETURN any other currency pair. The
Borrowing the JPY to lend in CAD matched the relative stock market performance of currency cross rate leads the
Japan relative to Canada (plotted inversely), but the huge shock of the yen carry FRR6,9 differential by three
trade’s closure during the 2008-2009 financial crisis distorted the basic relationship. months instead. Restated, the
cross rate establishes the expect-
ed interest-rate differential
between Canada and the
Eurozone. European investors
made decisions on Canadian
assets at the margin based on
currency-based prospective
returns, and vice-versa.
Prospective asset returns

Let’s use the relative perform-
ance of Japanese and Eurozone
stocks vs. Canadian stocks as a
proxy for prospective asset
returns in each market. The
MSCI total return indices meas-
ured in USD will provide the
raw material for the analysis.
The relative performance of

FIGURE 6: EUROZONE RELATIVE PERFORMANCE LINKED TO CARRY RETURN
Borrowing the EUR to lend the CAD has an intermittent weak and strong relation-
Japanese stocks to Canadian stocks ship. It diverges most during EUR bear markets (e.g., 1999-2000 and in 2005). The
broadly tracked the CAD per JPY carry return is unnaturally strong during those periods because the CAD tends to
cross rate from 1999 all the way cling to the USD while the EUR weakens.
through the bull market’s peak in
late 2007 (Figure 3). The relationship
resumed in 2009, but only after a
huge divergence during the 2008
financial crisis. This leaves us with a
problem faced often by trading sys-
tem designers: You have an indica-
tor or set of indicators that worked
for everything but the largest move
on record. It messes up your back-
test something fierce. What do you
do? If the huge loss was the result of
an event or Act of God-type of con-
sideration, the best course of action
is to accept the long-term economic
relationship (if it is sound) for the
simple reason you cannot predict
those sorts of events. So it is with
the relative performance of Japanese
stocks as a function of the CAD per
JPY cross rate: You could not have 1999-2000 and again in 2005. The carry return is unnatural-
accommodated all of the events of 2008 in any regard; at ly strong during those periods as the CAD tends to mirror
best you could have reduced your exposure. We should movements in the USD while the EUR weakens. The rela-
accept this as the conclusion for this relationship. tive stock performance tends to be unaffected during such
The relative performance of Eurozone stocks to episodes
Canadian stocks as a function of the EUR per CAD cross
rate is quite different (Figure 4). It is, in fact, virtually non- Volatility and the insurance trade
existent in the record with the exception of stretches in the The aforementioned unwinding of the carry trade is a con-
2005-2008 period. This, too, is quite the exception to the stant problem with anything related to the JPY (see
relative stock market performances seen elsewhere as a “Looking at the carry trade,” June 2007) and, increasingly,
function of currency cross rates. The most common pattern with anything related to the USD. As the market antici-
globally is for one to mirror the other, making internation- pates any sort of appreciation in the JPY, its implied
al diversification in the stock market an expensive form of volatility jumps relative to its high-low-close (HLC)
currency trading. volatility, which is defined as:
If we shift the currency variable from the spot rate to the
cumulative carry return on the strategy of borrowing one
currency and lending in the other, the relative performance
measure matches more closely. The trade of borrowing the
JPY to lend in the CAD matched the relative stock market
performance of Japan relative to Canada, plotted inversely
(Figure 5). Still, the enormous shock of the yen carry where N is the number of days between 4 and 29 that
trade’s closure during the 2008-2009 financial crisis distort- minimizes the function:
ed the basic relationship between these two asset return
measures.
The trade of borrowing the EUR to lend in the CAD has
an intermittent weak and strong relationship (Figure 6). It
diverges most during bear markets for the EUR, such as in Can we learn anything by creating a measure of excess

ON THE MONEY
ADVANCED STRATEGIES
volatility, the ratio of implied volatility to HLC volatility non-deliverable forwards starts in 2005, the following
minus 1.00, and mapping it against the cross rates? charts will have a shorter time span.
Because the implied volatility series used for three-month Our prior expectation should be for the excess volatility
for JPY forwards for a CAD-domi-
FIGURE 7: EXCESS VOLATILITY FOLLOWS THE TREND IN CAD/JPY CROSS ciled holder to rise and fall with
the cross rate itself, and this does
The excess volatility measure jumped before the huge JPY spike during the 2008 in fact appear to be the case
financial crisis and then fell during the peak of that crisis. A better leading indicator
(Figure 7). Interestingly, the excess
might be difficult to find.
volatility measure jumped prior to
the huge spike in the JPY during
the 2008 financial crisis and then
fell during the peak of that crisis.
A better leading indicator we
might not be able to find.
Given everything we have seen
above for the CAD per EUR cross
rate, we should not expect a simi-
lar move. Figure 8 shows EUR-
domiciled investors do not seek
option protection on the CAD
prior to periods of CAD strength.
We are left with several strong
conclusions. First, if given a choice
between trading the CAD cross
rate to the EUR and JPY, you
always should choose the JPY
cross rate. It is linked to interest-
rate expectations, relative asset
FIGURE 8: EXCESS VOLATILITY UNRELATED TO EUR/CAD CROSS TREND returns and volatility measures.
Second, a reliable negative indica-
EUR-domiciled investors do not seek option protection on the CAD prior to periods
of CAD strength. tor is just as valuable as a reliable
positive indicator. The EUR cross
rate lacks the consistent relation-
ships seen for the JPY indicator.
Finally, we have good fundamental
reasons to expect the CAD per JPY
cross rate to work, including
Japan’s large portfolio investment
in Canada and Canada’s impor-
tance as a materials exporter to
Japan.
Perhaps one reason cross-rate
trading has taken a back seat to
outrights against the USD over the
years is traders’ collective tendency
to treat each one as the same. They
are not. A little homework in this
field often produces big payoffs.
Click here for information on the author.

CURRENCY FUTURES SNAPSHOT as of 4/27/10
The information does NOT constitute trade signals. It is intended only to provide a brief synopsis of each market’s liquidity, direction, and levels of momentum and volatility.
See the legend for explanations of the different fields.
Market Symbol Exchange Volume OI 10-day move/% rank 20-day move/% rank 60-day move/% rank Volatility ratio/rank
Eurocurrency EC CME 302.8 203.3 -2.85% / 100% -1.58% / 47% -5.11% / 44% .27 / 78%
British pound BP CME 105.9 125.3 -0.75% / 0% 1.32% / 25% -4.36% / 36% .15 / 15%
Japanese yen JY CME 104.9 117.6 0.06% / 0% -0.32% / 11% -2.63% / 72% .34 / 32%
Australian dollar AD CME 78.2 143.3 -1.10% / 100% -0.03% / 0% 2.71% / 47% .30 / 28%
Canadian dollar CD CME 71.6 146.1 -1.17% / 100% 0.48% / 6% 4.84% / 91% .32 / 32%
Swiss franc SF CME 48.0 32.8 -2.88% / 100% -1.78% / 47% -2.52% / 45% .48 / 90%
U.S. dollar index DX ICE 20.2 47.3 2.09% / 88% 0.70% / 31% 3.95% / 53% .33 / 83%
Mexican peso MP CME 16.7 134.6 -1.26% / 100% 0.56% / 4% 4.24% / 69% .18 / 30%
New Zealand dollar NE CME 8.2 17.4 0.24% / 13% 0.44% / 21% 0.40% / 11% .32 / 73%
E-Mini Eurocurrency ZE CME 4.1 2.9 -2.85% / 100% -1.58% / 47% -5.11% / 44% .27 / 78%
Note: Average volume and open interest data includes both pit and side-by-side electronic contracts (where applicable).
LEGEND: Managed money: Barclay Trading Group’s

Volume: 30-day average daily volume, in thou- currency trader rankings for March 2010
sands.
Top 10 currency traders managing more than $10 million
OI: 30-day open interest, in thousands. as of March 31, ranked by March 2010 return.
10-day move: The percentage price move from 2010 $ Under
the close 10 days ago to today’s close. March YTD mgmt.
Rank Trading advisor return return (millions)
20-day move: The percentage price move from
the close 20 days ago to today’s close. 1. Goldman Sachs (Fund. Currency) 13.12% 18.60% 501.5
2. 24FX Management Ltd 11.20% -7.50% 29.7
60-day move: The percentage price move from
the close 60 days ago to today’s close. 3. Dacharan Capital (High Exposure) 7.12% 24.23% 30.0
4. MIGFX Inc (Retail) 6.02% 10.84% 13.0
The “% rank” fields for each time window (10-
day moves, 20-day moves, etc.) show the per- 5. FX Concepts (Multi-Strategy) 4.66% 6.90% 3078.0
centile rank of the most recent move to a certain 6. Cambridge Strategy (Emerging Mkts) 4.53% 6.47% 90.0
number of the previous moves of the same size 7. Harmonic Capital (Gl. Currency) 3.48% 1.90% N/A
and in the same direction. For example, the % 8. Quantica Capl (Diversified FX) 3.20% 3.28% 25.0
rank for the 10-day move shows how the most
9. Auriel Currency 2X Fund 3.04% -1.74% 176.0
recent 10-day move compares to the past twenty
10. GAM Currency Hedge (Discr Seg Port) 3.01% 3.78% 15.9
10-day moves; for the 20-day move, it shows how
the most recent 20-day move compares to the
Top 10 currency traders managing less than $10 million and more than
past sixty 20-day moves; for the 60-day move, it
$1 million as of March 31, ranked by March 2010 return.
shows how the most recent 60-day move com-
pares to the past one-hundred-twenty 60-day 1. Excel Capital Mgmt. (FX) 33.85% 76.31% 2.3
moves. A reading of 100% means the current 2. Valhalla Capital Group (Int'l AB) 4.10% 7.80% 1.2
reading is larger than all the past readings, while 3. Overlay Asset Mgmt. (Emerging Mkts) 3.37% 3.33% 7.9
a reading of 0% means the current reading is 4. Drury Capital (Currency) 2.11% 2.36% 3.9
smaller than the previous readings. 5. Armytage AAM (Asian Currency) 2.07% -1.20% 4.0
Volatility ratio/% rank: The ratio is the short-term 6. Greenwave Capital Mgmt (GDS Alpha) 1.74% 1.17% 8.0
volatility (10-day standard deviation of prices) 7. Rove Capital (Dresden) 1.46% 3.60% 2.2
divided by the long-term volatility (100-day stan- 8. Greenwave Capital Mgmt (GDS Beta) 1.34% 0.22% 8.0
dard deviation of prices). The % rank is the per- 9. Millennium Global Currency (USD) 1.10% -1.39% 2.3
centile rank of the volatility ratio over the past 60 10. Aurora Futures Corp (FX) 1.07% 2.35% 2.2
days. Source: BarclayHedge (www.barclayhedge.com). Based on estimates of the composite of all accounts or the
fully funded subset method. Does not reflect the performance of any single account.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.

TRADING STRATEGIES
INTERNATIONAL MARKETS
CURRENCIES (vs. U.S. DOLLAR)
Current
price vs. 1-month 3-month 6-month 52-week 52-week Previous
Rank* Country Currency U.S. dollar gain/loss gain/loss gain/loss high low rank
1 British pound 1.53787 3.29% -4.80% -5.68% 1.7042 1.4513 16
2 Singapore dollar 0.72966 2.60% 2.22% 1.79% 0.7299 0.6652 10
3 Brazilian real 0.569315 2.45% 3.49% -2.16% 0.5882 0.4407 11
4 Indian rupee 0.0225 2.44% 4.34% 4.63% 0.02263 0.01959 3
5 Canadian dollar 1.000925 2.24% 5.79% 0.05% 1.0068 0.815 2
6 Australian dollar 0.927495 1.81% 2.49% 0.57% 0.9405 0.6988 5
7 New Zealand dollar 0.716975 1.56% 0.41% -4.96% 0.7635 0.5524 7
8 Russian ruble 0.0343 1.54% 3.17% -0.69% 0.03497 0.02953 8
9 Taiwan dollar 0.031695 1.04% 1.33% 2.59% 0.03199 0.02955 9
10 Swedish krona 0.139255 1.02% 0.60% -5.45% 0.148 0.1207 15
11 Thai baht 0.031095 0.88% 2.59% 4.01% 0.03134 0.02786 4
12 Euro 1.33815 0.43% -5.47% -10.83% 1.5144 1.2964 14
13 South African rand 0.13492 0.17% 2.45% 0.79% 0.1389 0.1118 1
14 Chinese yuan 0.146445 -0.01% -0.02% -0.12% 0.14760 0.1458 13
15 Hong Kong dollar 0.128815 -0.02% 0.09% -0.17% 0.1291 0.1286 12
16 Swiss franc 0.93216 -0.16% -3.04% -5.96% 1.0087 0.8617 6
17 Japanese yen 0.01064 -1.75% -4.06% -2.07% 0.01179 0.01002 17
As of April 26 *based on one-month gain/loss
ACCOUNT BALANCE
Rank Country 2008 Ratio* 2007 2009+ Rank Country 2008 Ratio* 2007 2009+
1 Singapore 36.188 19.222 47.311 33.838 12 United Kingdom -40.725 -1.517 -75.483 -28.838
2 Norway 83.825 18.59 54.678 52.901 13 Belgium -12.855 -2.539 9.956 -1.254
3 Hong Kong SAR 29.296 13.618 25.529 23.373 14 Czech Republic -6.669 -3.086 -5.483 -1.942
4 Sweden 37.279 7.783 39.054 25.781 15 Italy -78.874 -3.418 -51.691 -71.27
5 Germany 245.722 6.69 253.756 160.627 16 Australia -46.683 -4.406 -57.552 -40.941
6 Taiwan Province 17 United States -706.068 -4.889 -726.572 -417.999
of China 25.122 6.239 32.975 42.572 18 Ireland -13.886 -5.189 -13.876 -6.705
7 Netherlands 41.978 4.787 67.589 41.652 19 Spain -153.665 -9.592 -144.435 -74.136
8 Japan 157.079 3.214 210.967 141.656
Totals in billions of U.S. dollars
9 Switzerland 11.947 2.388 43.531 43.102 *Account balance as percent of GDP +Estimate
10 Canada 7.606 0.507 14.53 -36.132 Source: International Monetary Fund, World Economic Outlook
11 Korea -5.776 -0.62 5.876 42.668 Database, April 2010.

NON-U.S. DOLLAR FOREX CROSS RATES
Currency 1-month 3-month 6-month 52-week 52-week
Rank pair Symbol April 26 gain/loss gain/loss gain/loss high low Previous
1 Pound / Yen GBP/JPY 144.51 5.06% -0.79% -3.71% 163.057 132.45 7
2 Canada $ / Yen CAD/JPY 94.085 4.06% 10.28% 7.70% 94.1429 78.9272 1
3 Aussie $ / Yen AUD/JPY 87.18 3.61% 6.84% 2.70% 87.4891 46.508 2
4 Pound / Franc GBP/CHF 1.65011 3.47% -1.79% 0.32% 1.8112 1.5778 17
5 New Zeal $ / Yen NZD/JPY 67.395 3.38% 4.68% -2.95% 69.5573 53.87 4
6 Euro / Yen EUR/JPY 125.74 2.19% -1.49% -8.97% 139.2 119.63 6
7 Aussie $ / Franc AUD/CHF 0.994995 1.97% 5.71% 6.94% 0.9959 0.8137 12
8 Franc / Yen CHF/JPY 87.59 1.59% 1.04% -4.01% 91.549 81.73 3
9 Pound / Aussie $ GBP/AUD 1.65809 1.45% -7.11% -6.21% 2.0859 1.6328 18
10 Pound / Canada $ GBP/CAD 1.536445 1.03% -10.01% -10.57% 1.9173 1.52074 21
11 Euro / Franc EUR/CHF 1.435535 0.58% -2.50% -5.18% 1.5383 1.4141 15
12 Aussie $ / New Zeal $ AUD/NZD 1.293595 0.25% 2.06% 5.82% 1.3233 1.1931 11
13 Canada $ / Real CAD/BRL 1.758125 -0.21% 2.22% 7.80% 1.8546 1.6003 5
14 Aussie $ / Canada $ AUD/CAD 0.926635 -0.41% -3.12% -4.64% 0.9895 0.8607 13
15 Aussie $ / Real AUD/BRL 1.629145 -0.62% -0.97% 2.79% 1.6978 1.5256 8
16 Euro / Aussie $ EUR/AUD 1.44278 -1.36% -7.76% -11.33% 1.865 1.432 16
17 Euro / Canada $ EUR/CAD 1.33691 -1.77% -10.64% -15.45% 1.63 1.3339 20
18 Euro / Real EUR/BRL 2.35046 -1.98% -8.66% -8.86% 2.9656 2.35046 10
19 Franc / Canada $ CHF/CAD 0.931295 -2.34% -8.35% -10.83% 1.0724 0.93 14
20 Euro / Pound EUR/GBP 0.869955 -2.79% -0.72% -5.42% 0.9411 0.8399 9
21 Yen / Real JPY/BRL 0.01869 -4.10% -7.29% 0.11% 0.02316 0.01865 19
GLOBAL STOCK INDICES
1-month 3-month 6-month 52-week 52-week
Rank Country Index April 26 gain/loss gain/loss gain/loss high low Previous
1 U.S. S&P 500 1,212.05 3.90% 10.98% 13.60% 1,219.80 847.12 10
2 Germany Xetra Dax 6,332.10 3.46% 11.70% 12.23% 6,341.52 4,524.01 3
3 Singapore Straits Times 3,002.62 3.31% 9.57% 10.53% 3,037.97 1,791.45 8
4 Canada S&P/TSX composite 12,280.97 2.71% 8.10% 9.31% 12,297.88 9,273.80 13
5 South Africa FTSE/JSE All Share 29,309.47 2.54% 9.97% 8.92% 29,565.10 20,281.12 4
6 Hong Kong Hang Seng 21,587.06 2.54% 7.35% -4.44% 23,099.60 14,458.00 15
7 Mexico IPC 33,771.55 1.88% 10.18% 11.53% 34,223.90 21,430.10 9
8 Japan Nikkei 225 11,165.79 1.54% 8.14% 7.75% 11,408.20 8,493.77 2
9 UK FTSE 100 5,753.90 0.89% 9.04% 10.83% 5,833.70 4,018.20 6
10 India BSE 30 17,745.28 0.57% 8.93% 6.00% 18,047.90 10,961.80 7
11 Brazil Bovespa 68,872.00 0.28% 5.11% 5.82% 71,989.00 44,966.00 12
12 France CAC 40 3,997.39 0.21% 5.00% 6.76% 4,088.18 2,957.83 5
13 Australia All ordinaries 4,913.30 0.17% 5.21% 1.67% 5,048.60 3,643.40 11
14 Switzerland Swiss Market 6,803.70 -0.52% 4.93% 7.94% 6,990.70 5,023.80 14
15 Italy FTSE MIB 22,783.27 -1.22% 1.68% -0.95% 24,559 17,626 1
GLOBAL CENTRAL BANK LENDING RATES
Country Interest rate Rate (%) Last change Sept. 2009 April 2009
United States Fed funds rate 0-0.25 0.5 (Dec. 08) 0-0.25 0-0.25
Japan Overnight call rate 0.1 0.2 (Dec. 08) 0.1 0.1
Eurozone Refi rate 1 0.25 (May 09) 1 1.25
England Repo rate 0.5 0.5 (March 09) 0.5 0.5
Canada Overnight funding rate 0.25 0.25 (April 09) 0.25 0.25
Switzerland 3-month Swiss Libor 0.25 0.25 (March 09) 0.25 0.25
Australia Cash rate 4.25 0.25 (April 10) 3.25 3
New Zealand Cash rate 2.5 0.50 (April 09) 2.5 2.5
Brazil Selic rate 9.5 0.75 (April 10) 8.75 10.25
Korea Overnight call rate 2 0.5 (Feb. 09) 2 2
Taiwan Discount rate 1.25 0.25 (Feb. 09) 1.25 1.25
India Repo rate 5.25 0.25 (April 10) 4.75 4.75
South Africa Repurchase rate 7 0.5 (Aug. 09) 7 8.5
GLOBAL BOND RATES
Rank Country Rate April 26 1-month 3-month 6-month High Low Previous
1 German BUND 124.06 1.08% 0.63% 2.67% 124.53 117.47 1
2 Japanese Government Bond 139.25 0.65% -0.06% 0.91% 140.32 135.45 5
3 U.S. 10-year T-note 116.58 0.53% -1.06% -0.43% 122.17 112.90 3
4 UK Short Sterling 99.27 -0.02% -0.10% -0.14% 99.52 98.62 2
5 Australian 10-year bonds 94.16 -0.08% -0.30% -0.10% 95.32 94.09 4

INTERNATIONAL
continued MARKETS
GDP*
Release 1-year Next Unemployment
Period date Change change release Release 1-year Next
AMERICAS Period date Rate Change change release
Argentina Q4 3/17 4.8% 10.7% 6/18 AMERICAS
Brazil Q4 3/11 2.0% 4.3% 6/8 Argentina Q4 3/15 8.4% -0.7% 1.1% 5/21
Canada Q4 3/1 2.4% -0.7% 5/31 Brazil Feb. 3/25 7.4% 0.2% -1.1% 4/29
EUROPE Canada March 4/9 8.2% 0.0% 0.1% 5/7
France Q4 2/12 0.7% -0.2% 5/12 EUROPE
Germany Q4 2/12 -0.1% -0.6% 5/12 France Q4 3/4 9.6% 0.5% 1.8% 5/12
UK Q4 3/30 1.2% -1.7% 6/30 Germany Feb. 3/31 7.5% 0.0% 0.1% 4/29
AFRICA UK Dec.-Feb. 4/21 8.0% 0.2% 1.2% 5/12
S. Africa Q4 2/23 2.5% 6.7% 5/25 ASIA and S. PACIFIC
ASIA and S. PACIFIC Australia March 4/8 5.3% 0.0% -0.2% 5/13
Australia Q4 3/3 1.9% 1.3% 6/2 Hong Kong Jan.-March 4/20 4.4% 0.1% -0.7% 5/18
Hong Kong Q4 2/24 5.7% 2.6% 5/14 Japan Feb. 3/31 4.9% 0.0% 0.5% 4/30
India Q4 2/26 8.8% 11.9% 5/31 Singapore Q4 1/29 2.1% -1.3% -0.4% 4/30
Japan Q4 2/28 1.1% 4.6% 5/20
Singapore Q4 2/19 -1.2% 4.0% NLT 5/21
* Final estimates, at current prices, seasonally adjusted
CPI PPI
Release 1-year Next Release 1-year Next
Period date Change change release Period date Change change release
AMERICAS AMERICAS
Argentina March 4/14 1.1% 9.6% 5/12 Argentina March 4/14 1.5% 13.8% 5/12
Brazil March 4/8 0.5% 2.1% 5/7 Brazil March 4/8 0.5% 0.6% 5/6
Canada March 4/23 0.0% 1.4% 5/21 Canada Feb. 3/30 0.0% -0.6% 4/30
EUROPE EUROPE
France March 4/13 0.5% 1.6% 5/12 France Feb. 3/31 0.1% 1.0% 4/30
Germany March 4/13 0.5% 1.1% 5/11 Germany March 4/20 0.7% -1.5% 5/20
UK March 4/20 0.5% 3.4% 5/18 UK March 4/9 0.9% 5.0% 5/7
AFRICA AFRICA
S. Africa March 4/28 0.8% 5.1% 5/26 S. Africa Feb. 3/25 0.4% 3.5% 4/29
ASIA and S. PACIFIC ASIA and S. PACIFIC
Australia Q1 4/28 0.9% 2.9% 7/28 Australia Q1 4/27 1.0% -0.1% 7/26
Hong Kong March 4/22 4.4% 2.0% 5/20 Hong Kong Q1 3/12 1.8% -0.3% 6/14
India Feb. 3/31 -1.2% 14.9% 4/30 India March 4/15 0.3% 9.9% 5/15
Japan Feb. 3/26 -0.1% -1.1% 4/30 Japan March 4/13 0.2% -1.3% 5/17
Singapore March 4/23 0.1% 1.6% 5/24 Singapore Feb. 3/29 -0.2% 11.4% 4/29
LEGEND:
Change: Change from previous report release. NLT: No later than. Rate: Unemployment rate.
As of April 28

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GLOBAL ECONOMIC CALENDAR: MAY/JUNE
May
CPI: Consumer price index 1 21 Canada: April CPI
ECB: European Central Bank Japan: Bank of Japan interest-rate
FDD (first delivery day): The 2
announcements
first day on which delivery of a
commodity in fulfillment of a 3 U.S.: April ISM manufacturing report
futures contract can take place.
22
4
FND (first notice day): Also 23
known as first intent day, this is
5
the first day on which a clearing- 24 Mexico: May 15 PPI
house can give notice to a buyer
6 Brazil: April PPI
of a futures contract that it 25 Mexico: Q1 GDP and April
intends to deliver a commodity in EU: Governing council interest-rate
fulfillment of a futures contract. employment report
announcement
The clearinghouse also informs
26 South Africa: April CPI
the seller. 7 U.S.: April employment report
FOMC: Federal Open Market U.S.: April durable goods
Brazil: April CPI
Committee
GDP: Gross domestic product Canada: April employment report 27 U.S.: Q1 GDP (second)
ISM: Institute for supply Mexico: April 30 CPI Brazil: April employment report
management UK: April PPI South Africa: April PPI
LTD (last trading day): The final LTD: May U.S. dollar index options
day trading can take place in a 28 U.S.: April personal income
futures or options contract. (ICE)
Japan: April employment report and
PMI: Purchasing managers
index
8 CPI
PPI: Producer price index 9 29
Economic Release 10 UK: Bank of England interest-rate 30
release (U.S.) time (ET)
GDP 8:30 a.m. announcement
31 Canada: Q1 GDP and April PPI
CPI 8:30 a.m.
ECI 8:30 a.m.
11 Germany: April CPI Hong Kong: Q1 GDP and April CPI
PPI 8:30 a.m. June
12 U.S.: March trade balance
ISM 10:00 a.m.
France: Q1 GDP and employment
Unemployment 8:30 a.m. 1 U.S.: May ISM manufacturing report
Personal income 8:30 a.m. report; April CPI
Canada: Bank of Canada
Durable goods 8:30 a.m. Germany: Q1 GDP
Retail sales 8:30 a.m. interest-rate announcement
UK: March employment report
Trade balance 8:30 a.m. France: April PPI
Leading indicators 10:00 a.m. 13 Germany: April employment report
14 U.S.: April retail sales 2 Australia: Q1 GDP

MAY 2010 Hong Kong: Q1 GDP
3
25 26 27 28 29 30 1 15 Hong Kong: April PPI
2 3 4 5 6 7 8
4 U.S.: May employment report
9 10 11 12 13 14 15
16 Canada: May employment report
LTD: June U.S. dollar index options
16 17 18 19 20 21 22 17 Japan: April PPI
(ICE); June currency options
23 24 25 26 27 28 29
18 U.S.: April PPI
30 31 1 2 3 4 5 5
Hong Kong: Feb.-April employment
report
The information on this page is UK: April CPI
subject to change. Currency
Trader is not responsible for the 19 U.S.: April CPI
accuracy of calendar dates
beyond press time. 20 U.S.: April leading indicators
Germany: April PPI
Hong Kong: April CPI
Japan: Q1 GDP

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and Swiss markets. The German market is the sixth new intends to be launch later this year.
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(USE) has received final approval from the Securities and
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Arabic service under its FOREX.com UK division. The futures on four rupee-based currency pairs: the U.S. dol-
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products and upgrades. Listings are adapted from press releases and are not
commentary and analysis from a global team of econo-
endorsements or recommendations from the Active Trader Magazine Group.
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E-mail press releases to editorial@currencytradermag.com. Publication is
FOREX.com is providing free educational resources,
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KEY CONCEPTS
Curve-fitting refers to the process of tailoring or opti- True range (TR): A measure of price movement or
mizing a trading system’s rules to produce the best result volatility that accounts for the gaps that occur between
(typically, the highest profit) on a particular set of price price bars. This calculation provides a more accurate
data. However, trading rules that are overly fit to specific reflection of the size of a price move over a given period
data in this fashion almost invariably produce poor results than the standard range calculation, which is simply the
in actual trading because the exact conditions of the test high of a price bar minus the low of a price bar. The true
data are never repeated precisely in the future. range calculation was developed by Welles Wilder and dis-
cussed in his book New Concepts in Technical Trading
Moving average convergence-divergence Systems (Trend Research, 1978).
(MACD): Although it is often grouped with oscillators, the True range can be calculated on any time frame or price
MACD is more of an intermediate-term trend indicator bar — five-minute, hourly, daily, weekly, etc. The following
(although it can reflect overbought and oversold condi- discussion uses daily price bars for simplicity. True range
tions). is the greatest (absolute) distance of the following:
The default MACD line (which can also be plotted as a 1. Today’s high and today’s low.
histogram) is created by subtracting a 26-period exponen- 2. Today’s high and yesterday’s close.
tial moving average (EMA) of closing prices from a 12- 3. Today’s low and yesterday’s close.
period EMA of closing prices; a nine-period EMA is then
applied to the MACD line to create a “signal line.” Average true range (ATR) is simply a moving average of
MACD = EMA(C,12)-EMA(C,26) the true range over a certain time period. For example, the
Signal line = EMA(MACD,9) five-day ATR would be the average of the true range calcu-
lations over the last five days.
Quantitative easing is a tool a central bank uses to
attempt to stimulate the economy when cutting interest Volatility: The level of price movement in a market.
rates is not feasible — such as when rates are already at or Historical (“statistical”) volatility measures the price fluc-
near zero. Through quantitative easing, the central bank tuations (usually calculated as the standard deviation of
purchases assets (e.g., treasuries, mortgages, securities) closing prices) over a certain time period — e.g., the past
from financial institutions to pump money into the finan- 20 days. Implied volatility is the current market estimate of
cial system. Quantitative easing is often referred to as future volatility as reflected in the level of option premi-
“printing money.” Critics contend the practice runs a high ums. The higher the implied volatility, the higher the
risk of creating high inflation, among other drawbacks. option premium.
GLOBAL MARKETS continued from p. 9

2009 through April 2010, May copper futures (CLK10) now,” Alvarez says.
advanced from $2.7400 per pound to as high as $3.6800 Last summer, Venezuelan President Hugo Chavez sus-
per pound in mid-April. pended Colombian imports after reports that Columbia
Chile’s benchmark interest rate remains at 0.50 percent, had agreed to allow the U.S. to use some of its military
and few see significant tightening on the horizon. bases.
“In order to support the reconstruction process, mone- “Merchandise exports in Colombia were $34 billion in
tary policy could remain expansionary for the whole year, 2009, down 12 percent relative to 2008,” Sandy says. “We
and only move the policy rate to a more neutral area by are expecting an 11-percent increase in 2010. I do not
the end of the year,” says Coutino. expect the diplomatic spat with Venezuela to disappear
In mid-April the Chilean peso (CLP) was down approx- anytime soon and this will likely continue to be a drag on
imately 3.5 percent from the start of 2010. Lombardi says trade between the two countries.”
his firm has “no recommendation open” on the Chilean Sandy says this year’s 4.72-percent gain (through April
currency. 19) in the Colombian peso vs. the U.S. dollar is not directly
tied to what’s happening in the economy.
Colombia: Exports down “The main reason is dollar inflows from foreign direct
Of Colombia, Credit Suisse economist Carola Sandy notes investment and private and government borrowing, which
“while the outlook is good, it is not one of the fast-grow- is quite large,” she says.
ing economists in Latin America.” Her firm forecasts 2-
percent GDP growth for 2010, which is “far behind the Standing solid
other countries in the region,” she says. While economists stress that each Latin country faces
The problem is partially tied to its two largest trading unique challenges, for the most part the majority of the
partners — the U.S. and Venezuela. Exports to the U.S. governments in the region have practiced, as Alvarez says,
slowed during the recession there, while Venezuela has “quite prudent fiscal management.”
intentionally cut back on imports. It has put this corner of the globe in a enviable position.
“The ongoing political skirmishes with Venezuela are “Overall, the state of the region is better on a global per-
the Achilles heels of the Colombia recovery story right spective than most developed nations,” he says.

FOREX TRADE JOURNAL
A missed exit opportunity, or just

a matter of waiting patiently?
TRADE
Date: Thursday, April 21, 2010.
Entry: Short the Australian

dollar/U.S. dollar (AUD/USD) at
.9292.
Reason for trade/setup: The

short-side setup described in “Top pat-
tern feeds bottom formation” (Currency
Trader, March 2010) signaled another
down move the week ending April 16.
The signal, which is basically a week
that makes a higher high but reverses
the previous week’s momentum,
showed historically favorable odds of
being followed by a three-week
decline. The highlighted bars in the Source: TradeStation
weekly chart inset mark the current
signal and the previous two. This signal occurred just as intraday to close just 15 pips below the entry price. At this
the market was testing the resistance established by the point, it was apparent the pair was consolidating within
November 2009 high. The short position was establish on its larger congestion. After rebounding to a little above the
a bounce off an initial down move that bottomed at .9157 entry price on April 26, the pair swung lower again, this
time to a lower low of .9135 on April 27, but the market
Initial stop: .9377 again bounced back to around .9300.
As of April 30 the target and stop prices were intact,
Initial target: .9022. and the market appeared to be on the brink of deciding
the trade’s fate, one way or the other. Time will be running
out, as the position will be entering the third week after
RESULT the signal. We will lower the stop to breakeven on the next
move below .9200, if one occurs.
Exit: Trade still open. Go to www.currencytradermag.com after May 5 to see how
this trade turned out.
Profit/loss: -.0001, marked to market around 10:55 a.m.
ET on April 30. Note: Initial trade targets are typically based on things such as the historical per-
formance of a price pattern or a trading system signal. However, because indi-
Outcome: Two days after entry the Aussie dollar slipped vidual trades are dictated by immediate circumstances, price targets are flexible
near to the April 19 low around .9157, making it tempting and are often used as points at which to liquidate a portion of a trade to reduce
to exit the position — especially after the market reversed exposure. As a result, initial (pre-trade) reward-risk ratios are conjectural by
nature.
TRADE SUMMARY
Date Currency Entry Initial Initial IRR MTM Date P/L LOP LOL Trade
pair price stop target Point % length
4/21/10 AUD/USD 0.9292 0.9377 0.9022 3.18 0.9301 4/30/10 -.0001 - 0.0157 -0.0031 7 days
Legend: IRR: initial reward/risk ratio (initial target amount/initial stop amount). LOP: largest open profit (maximum available profit during
lifetime of trade). LOL: largest open loss (maximum potential loss during life of trade). MTM: marked to market — the trade’s open prof-
it or loss at a given point in time.

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to the ad in this month’s issue.

The (cross) road less traveled sometimes eSignal

Your FX Trading Room

2 May 2010 • CURRENCY TRADER

Howard Simons is president of

Barbara Rockefeller (www.rts-forex.com) is an

Art director: Laura Coyle Daniel Fernandez is an active trader

President: Phil Dorman and economics who has been focusing on

4 May 2010 • CURRENCY TRADER

Improved Charts Watchlists

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Latin economies hot,

BY CURRENCY TRADER STAFF

A s the global recovery pushes into mid-2010,

Brazil: Strong growth,

6 May 2010 • CURRENCY TRADER

CURRENCY TRADER • May 2010 7

FIGURE 2: DOLLAR/MEXICAN PESO future.

8 May 2010 • CURRENCY TRADER

Chile quake,” Alvarez says. “The numbers will reflect slowdown

CURRENCY TRADER • May 2010 9

Can you use

W hat good is the dollar

benchmark for overall market direc-

10 May 2010 • CURRENCY TRADER

CURRENCY TRADER • May 2010 11

Who’s using it?

12 May 2010 • CURRENCY TRADER

CURRENCY TRADER • May 2010 13

Using dynamic look-back

O ne of the biggest challenges of mechanical

14 May 2010 • CURRENCY TRADER

The moving average strategy

The profit target would be:

For the MACD strategy the

CURRENCY TRADER • May 2010 15

FIGURE 3: ADAPTIVE EQUATIONS

For example, if the 14-day ATR for

If the ATR increases to 200 pips, the

4250*0.0200 + 150 = 235

16 May 2010 • CURRENCY TRADER

Avg. yearly Max. Winning No. of Profit Max. consec.

MACD strategy 5.3% 19.2% 52.9% 874 1.8 8/8

Adaptive technique results are shown in green.

CURRENCY TRADER • May 2010 17

18 May 2010 • CURRENCY TRADER

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FIGURE 4: EUROZONE RELATIVE PERFORMANCE SELDOM LINKED TO CROSS

Prospective asset returns

20 May 2010 • CURRENCY TRADER

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Click here for information on the author.

22 May 2010 • CURRENCY TRADER

LEGEND: Managed money: Barclay Trading Group’s

CURRENCY TRADER • May 2010 23

1 British pound 1.53787 3.29% -4.80% -5.68% 1.7042 1.4513 16

2 Singapore dollar 0.72966 2.60% 2.22% 1.79% 0.7299 0.6652 10